The report of the Comptroller & Auditor General (CAG) on the Rafael fighter aircraft deal throws up more questions than it answers. The CAG’s report on the Rafale deal is a let-down.

By Kapil Sibbal

Delhi, March 07, 2019: This aircraft deal is referred to as an Inter-Government Agreement (IGA) — between France and India. The nomenclature itself is difficult to understand in the context of events prior to April 10, 2015 when the Prime Minister decided, in a public pronouncement, to purchase 36 Rafael aircraft manufactured by France’s Dassault.

The United Progressive Alliance (UPA) government, through a global tender, had shortlisted two fighter aircraft: Dassault’s Rafael and the Eurofighter Typhoon, which is made by four European nations. The price bid of the Rafael was found to be lower than that of the Eurofighter. The UPA then decided to negotiate the terms and conditions for the acquisition of 126 Rafael aircraft.

This was not a government-to-government (G-to-G) contract, since any contract pursuant to a global tender cannot possibly be G-to-G. No global tenders were floated when the UPA bought defence equipment from either Russia or the United States; these were G-to-G contracts. Under the UPA’s 126 planes deal, 18 were to be manufactured by Dassault and the remainder, 108, were to be manufactured by the Hindustan Aeronautics Ltd. (HAL) under transfer-of-technology by Dassault.

In March 2015, Èric Trappier, the CEO of Dassault, publicly said the deal with HAL was 95% complete, with the balance to be hopefully finalised soon. But the Prime Minister scrapped this deal and instead decided to purchase 36 aircraft, excluding HAL from the transaction. The supplies were still to be made by Dassault and not the French government. Yet, the deal is referred to as an IGA and not a G-to-G.

Following the Prime Minister’s decision, the consequence was that all conditionalities relating to the purchase of the aircraft, including its price, were to be negotiated post his announcement, and contrary to Defence Procurement Procedures (DPP). In one sense, given the manner it was done, the purchase of the 36 aircraft was an entirely new deal. The Prime Minister’s announcement in 2015, made on French soil, put the Government of India in a very piquant situation, as it was bound by the unilateral decision of the Prime Minister. The Prime Minister’s Office (PMO) was directly involved and interfered in the delicate negotiations that were to follow. This undermined the procedures contemplated under the DPP as well as the position of the Defence Acquisition Council (DAC), which under the DPP, was entitled to negotiate the deal. File notings that have been made public have embarrassed the PMO. Allegations of the PMO having undermined the negotiating position of the Defence Ministry ring true. In this, two features transformed the nature of the transaction: first, the inclusion of an offset partner, and second, the exclusion of HAL in the manufacturing of the remainder (the 108 aircraft).

The deal is not even an IGA, far from it being a G-to-G contract, because Dassault, a private company, and not the French government, is the supplier of the 36 aircraft. Consequently, the French government has refused to guarantee the supply of the aircraft in terms of the contract. Since Dassault was responsible for the supply, the contract should have retained the integrity clause along with clauses pertaining to commissions. The clauses relating to penalties and anti-corruption should not have been excluded. The PMO, presumably, intervened to have these clauses removed. No reason has been given as to why this was done and at whose instance.

Withdrawal from the deal by the DAC would have embarrassed the Prime Minister. Therefore, the French government found it easy to reject stipulations that would later embarrass them. The guarantee for supplies was replaced by a Letter of Comfort, which in legal terms, is not enforceable. Even payments by the French government to Dassault through an escrow account was rejected, perhaps because the French did not wish to be saddled with that responsibility.

The CAG has let us down in more than one way. First, its report limits itself to the pricing issue of the 36 aircraft and concludes that the deal was 2.86% cheaper than the one which was to have been finally negotiated by the UPA. The CAG report does not disclose all the facts and on non-transparent assumptions arrived at this conclusion. It is difficult to scrutinise the rationale behind this conduct. Second, the CAG has chosen not to deal with the cavalier manner in which the Prime Minister picked 36 aircraft off the shelf. Third, the report ignores the procedures required to be followed under the DPP of 2013.

It also chooses not to refer to the dissent notes of the Indian Negotiating Team and thus fails to provide justification for overruling them. Further, it fails to explain the reasons why the anti-corruption and other clauses were not included in the final terms of the contract. Though the CAG comments on the issue of financial impact of not providing for guarantees, it chooses not to deal with reasons why guarantees were not provided for.

What is most surprising is that the CAG seeks to criticise the UPA for choosing the Rafael but is silent on the Prime Minister’s decision to endorse the purchase of the aircraft. The objective for reducing the number of aircraft from 126 to only 36, to augment the depleting strength of the Indian Air Force, does not seem to have been achieved as the report itself concludes that the delivery schedule under the new deal is shorter only by one month when compared to the timelines under the UPA’s deal.

By not rising to the occasion, the Office of the CAG has let itself down. The CAG has gone out of its way to protect this government. It is the integrity of the office of the CAG that needs protection. Image Credit - YouTube / CAG Office website / Bharat Samachar TV

(Kapil Sibal is a Rajya Sabha MP, former Union Minister, and a senior Congress leader.)

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